UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

Securities Exchange Act of 1934
Release No. 46100 / June 21, 2002

Accounting and Auditing Enforcement
Release No. 1580 / June 21, 2002

Administrative Proceeding
File No. 3-10809

In the Matter of

TIMOTHY J. NOONAN,

Respondent.

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ORDER INSTITUTING PUBLIC
PROCEEDINGS PURSUANT TO
SECTION 21C OF THE SECURITIES
EXCHANGE ACT OF 1934, MAKING
FINDINGS, AND IMPOSING A
CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public cease-and-desist proceedings be, and hereby are, instituted against Timothy J. Noonan ("Noonan") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act").

II.

In anticipation of the institution of these proceedings, Noonan has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings contained herein, except as to the Commission's finding of jurisdiction over Noonan and the subject matter of these proceedings, which Noonan admits, Noonan consents to the issuance of this Order Instituting Public Proceedings Pursuant to Section 21C Of The Securities Exchange Act Of 1934, Making Findings, and Imposing a Cease-And-Desist Order ("Order") and to the entry of the findings and imposition of the cease-and-desist order set forth below.

III.

FINDINGS

On the basis of this Order and the Offer submitted by Noonan, the Commission finds1 that:

A. Noonan was a director, president, and chief operating officer of Rite Aid Corporation ("Rite Aid") from March 1995 until December 1999. Noonan was also interim chief executive officer from October 15, 1999 through December 5, 1999.

B. Rite Aid is a Delaware corporation with principal offices located in Camp Hill, Pennsylvania. Rite Aid is one of the nation's largest drugstore chains, which currently operates more than 3600 stores located in thirty states and the District of Columbia. Rite Aid's stock is registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act and is listed on the New York Stock Exchange.

D. Rite Aid's FY 1998 and FY 1999 financial statements did not conform to Generally Accepted Accounting Principles with respect to a number of transactions and balances reported in the Forms 10-K.

E. Noonan participated in activities that caused Rite Aid to overstate its net income by, among other things, understating its vendor accounts payable and cost of goods sold. These understatements of accounts payable and cost of goods sold resulted from Rite Aid's improperly inflating deductions it claimed against outstanding payables it owed to its vendors.

F. Rite Aid had a practice since the early 1990's of systematically inflating deductions it took against amounts owed to vendors for damaged and outdated products ("D&Os"). For those vendors that did not require Rite Aid to return D&Os to them ("deduct vendors"), Rite Aid had the product destroyed and reported to the deduct vendors the quantity and dollar value of D&O product destroyed. Rite Aid then deducted the dollar value of destroyed D&O product from a future remittance to the vendor.

G. Noonan was aware that Rite Aid improperly inflated the quantities and dollar value of D&Os reported to the deduct vendors through a practice known within Rite Aid as vendor "up-charge". The vendors did not agree to or know about the up-charge.

H. Rite Aid also falsely reported to the vendors as D&Os some price markdowns. The vendors did not agree to share in the cost of the price markdowns and were misled into believing that the deductions taken by Rite Aid in February 1999 were for D&Os. Noonan participated in activities that caused Rite Aid to process unauthorized markdowns.

I. As a result of the vendor upcharge, Rite Aid overstated income before taxes for FY 1998 by approximately $7.6 million dollars, and for FY 1999 by approximately $27.8 million dollars. As a result of the price markdowns, Rite Aid overstated income before taxes for FY 1999 by the additional amount of approximately $29.7 million.

J. By reason of the conduct and events set forth above, Noonan committed or caused violations of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused violations by Rite Aid of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.

IV.

In view of the foregoing, the Commissions finds that Noonan committed or caused violations of Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused violations by Rite Aid of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. The Commission notes the cooperation extended to the Commission staff by Noonan during the course of the Commission's investigation. The Commission therefore deems it appropriate to issue a cease-and-desist order.

Accordingly, IT IS HEREBY ORDERED, effective immediately, that Noonan shall cease and desist from committing or causing any violation or any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from causing any violation or any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder.